(The news featured below is a selection from the news covered in the Federal Securities Law Reporter.)

Company Information Program Not Unlawful Stock Touting 

A fraud claim failed to sufficiently allege that officers of a data communications company engaged in a scheme to defraud investors through the dissemination of a "company and investment profile" in order to artificially inflate the price of the stock and benefit from insider sales. As alleged, the company created the profile because the stock price was stagnant and was not being followed by many analysts. The district court (SD Tex) rejected the investor argument that the program amounted to unlawful stock touting. In the absence of an inference of scienter in the pleadings, the court stated that there was nothing illegal about the creation or implementation of such a communication format. It also determined that the sales by the company's officers were not suspicious in either amount or timing.

Investor claims of financial misrepresentations stemming from a restatement by the company of financial statements covering more than two years were also dismissed. In issuing its restatements, the company disclosed that its auditors had found weaknesses in its internal controls and accounting errors at the company's subsidiaries. The court refused to impute knowledge of the subsidiaries' errors to the parent company officers by virtue of their positions in the parent company and absent allegations that the officers knew they were conveying false information, or were reckless in not knowing, the court determined that the restatements alone did not create a strong inference of scienter.

(In re Integrated Electrical Services, Inc. Securities Litigation (SD Tex ))